Taxable income - Ranch Hand - non-cash?

[Gretel]

I have a little complicated situation I would like your opinion on.

Couple will be moving to farm (3rd party couple who owns the farm), doing three things:

1. Work for the farmers - not as employees because of special visa and agreement

2. Run their own cattle

3. Run their own business

They will get for free: Housing, firewood, pasture use, hay, etc. I believe all of these items constitute trading income to them.

What complicates the issue is that the VISA is for their partnership LLC. The main venture they started didn't work out but part of the business will continue and running the cattle will be done within the LLC. They will not have a contract, even though the plan is to eventually take the whole farm over and buy out the current owners.

Thanks

[taxea]

I agree that the items you mentioned are trading. I would recommend they get the rest in a detailed written agreement signed by all parties to avoid any problems in the future.

[Snaggletooth]

Not trading income.

pasture use, hay, etc. I believe all of these items constitute trading income to them.

Thanks

If things such as pasture use and hay are considered trading income, then the taxpayers have a taxable basis in these things. As they are using the pasture and consuming the hay, these become deductions because of their basis. If they have been charged as income for pasture use and hay, then these items become basis just as if they had paid money for them.

If trading income is shown as revenue, be sure and deduct those business expenses with basis.

FWIW, firewood and the like are personal. No deduction for those unless used in the business.

[Gretel]

Yes, thanks, part of the deemed income is a deduction on their Schedule F. Luckily, I am sure they will keep very good records.